We’re All Socialists

Once you agree that we’re able to identify economic sectors that are neglected by markets, and furthermore accept the government’s role in allocating resources into those sectors, you have subscribed to two of the most important tenets of socialism, and are left to figure out what kind of socialist you want to be.

Some roles of government are so ancient that people take them for granted. No one is regarded as a socialist for asserting that government should build bridges or maintain a fire and police department. However the economic logic of government activity in these areas is not terribly different from the logic behind public education – or public insurance. The distinction between a “capitalist” who supports the government’s role in education, infrastructure and public safety, and a “socialist” who additionally supports the government’s role in insurance is only a matter of degree.

When western societies started pooling resources to collectively educate children in the 18th century, socialism wasnt even a word. All but the most rabid conservatives accept that collecting taxes and spending them to educate children is a proper role for government. (Conservatives get hysterical over the federal government’s role in education.)  Conservative acceptance of public education is as well their tacit acknowledgement of the failure of markets to fulfill the need.

It helps to be reminded of the chasm between “classical” economics and other economic models. Classical economics has it that markets are self-correcting and self-sustaining – that central planners cannot improve on a free market’s allocations. Anyone who accepts public education necessarily rejects classical economics – because if markets could not be improved upon by central planning, then public education would be unnecessary and wasteful – free markets would see to education privately, leaving no need for public schools.

But education markets suffer from several well-known problems. One is access to capital: a five year old cant go to the bank to secure a loan to pay for his education for the next 10 or 20 years. Even if he could, one’s own education is so rife in positive externalities, that it would suffer from chronic underinvestment. (The benefits of your education accrue significantly to other people – if you could somehow capture all of their benefit too, you would be willing to spend a lot more for your own education.) Parents who pay for their child’s education have the same externality problem.

Public education is a big ticket item, dramatically increasing the size of government. In the US, total annual government education spending on all levels will for the first time exceed $1 trillion in 2014. That’s 50% more than the government spends on defense – and almost as much as government spending on healthcare and pensions.

Once you accept our ability to identify failing market sectors, and subscribe in principle to the government’s ability to correct those failures through regulation or outright government provision, you open up the debate as to which market sectors need attention. Beyond education, infrastructure and security, perhaps the next most obvious market failure is insurance – and it’s no coincidence that governments worldwide have been in the insurance business for 150 years.

As conservatives mindlessly rail against government-provided health insurance as socialism, it’s amusing to chide them on their own socialist beliefs. But it’s no less heartening to appreciate the considerable common ground shared by Americans from both ends of the political spectrum.




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